Lesson 1, Topic 1
In Progress

4.3. Laws, regulations, rules and procedures covering the provision and use of financial services are observed to ensure compliance.

ryanrori January 7, 2021

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All financial services are subject to very specific laws. Finance is usually obtained from one of the following sources:

  • Institutional Investors
    • These are individuals who decide to invest money in your business. There are no laws that prescribe their or your actions. The only rule would be to check out the ethics of the possible investors and if you are not totally satisfied, to get as fast and as far away from this investor as possible. Remember, very few people ever became rich by being nice. If you do however decide to go ahead with an institutional investor, a proper contract must be drawn up between you and the investor. Take this contract to a totally independent lawyer, who knows contracts and your type of business, BEFORE signing anything.
  • Investment companies
    • Unit Trusts are share portfolios on the stock exchange that are administered by Investment Companies. The money of many investors are pooled and used to fund a range of ventures in order to make as much profit for the investors as possible. All Unit Trusts are controlled under the Control of Unit Trust Schemes Act, Nr. 18 of 1947, as amended by Act 11 of 1962 and Act 65 of 1963.
  • Trusts
    • This source of funding is controlled by no less than 5 separate pieces of legislation. Firstly it is controlled by the Administration of Estates Act, secondly by the Financial Institutions Act, thirdly by the Estate Duty Act, fourthly by the Companies Act and finally by the Protection of Trust Funds Act. This abundance of legislation shows clearly that this source of funding has been misused by investment seekers and fund administrators for a long time. As in the case of Institutional Investors, have everything checked out by an independent legal council.
  • Pension funds
    • Pension funds are controlled in terms of the Pension Fund Act of 1956 as amended. This Act states that Pension Funds must clearly stipulate their policy regarding investment, the rules, their involvement in and the returns obtained from such investment in both the Fund’s rules as well as in communication to members.
  • Insurance Companies
    • Assets belonging to Insurance Companies may not, in terms of the Insurance Act of 1943, be encumbered by loans or given as security for other investments. Insurance companies are however large players in the Investment Market. They however tend to invest in projects with long term yield such as Shopping Centres rather than in individual entrepreneurs or small enterprises.
  • Banks
    • Banks are normally the vehicle through which entities with excess funds do their investments. Insurance Companies, Pension Funds, Trusts and Institutional Investors will give funds to a bank to invest and to administer. Banks are however cautious by nature. Small businesses and especially entrepreneurs did not get much assistance from Banks in the past. Lately, as a result of pressure by Government, Banks all have Small Business Advice Centres and Consultants who are supposed to be Business Investment experts. Reality is, however, far removed from image and marketing and even though things are getting better, most banks are still far from Small Business friendly.
    • Banks will insist on Security for loans. See the discussion on Khula Enterprise Finance as a Government Institution.
  • Building Societies
    • Building Societies tend to focus more on the housing market. Since the collapse of Saambou, consumer confidence in Building Societies has diminished. For the purpose of Investment, Building Societies can be viewed as Banks with a slightly different focus.
  • Government Institutions
    • The Department of Trade and Industry (DTI) has established two organisations namely Khula Enterprise Finance and NTSIKA. Khula’s mission is to make access to finance easier for Entrepreneurs with inadequate collateral, whilst NTSIKA must equip Entrepreneurs with the skills required to make a success of their businesses.
    • Khula and Ntsika obtain funding from the Department of Labour as the various Learnerships, SETA’s, ESDA’s and other job creation drives do.
  • Investment Brokers
    • Investment Brokers are individuals or Companies that take Investors to profitable companies and that bring Investment to new enterprises with good business plans, for a commission. Always ensure that you know exactly what commission the Broker will require, who will have to pay it, when he wants it and make especially sure that you don’t have to pay anything if the Broker was not successful.
  • Short-term financing Service Providers (Loan sharks)

Visit by official from a major Bank. Please make notes on your observations in your workbook